Nutjob

I'd be really happy if Elon Musk spun off (and sold off) Tesla auto as an independent company, without him at the helm.  He's always been a bit nutty, but between the growing pains that could probably be solved by someone [group] from a high volume large item manufacturing company (like any mass market auto maker, or large truck manufacturer, or even frickin lawnmowers or refrigerators), and his increasingly detached-from-reality public persona (boring company, hyperloop) and now we've got possible fraud.  He's a good "idea person" but probably shouldn't be in charge of a very large company.

Not Surprising, but Not Sure The Conclusion is Fully Warranted

So lots of people believing the rich are extra mobile and that they will leave if their [local] taxes are raised doesn't apparently make it so.  At some level the argument that high taxes drive rich people away is, on its face, ridiculous.  Look at really highly taxed places in this country--NYC, San Francisco, NJ--and guess what, more rich people live in those places than live in the low taxed places in this country (both in terms of raw numbers, and, more relevantly, proportionally). So clearly low taxes aren't very useful for retaining rich people.

I would argue that the very things that high taxes can provide: better education, more/cleaner parks, better security...are reasons that all people would want to live in those places, but since many people want to live there, those places become expensive to live in and, over time, more wealthy people end up living in them than poorer people.

That said, it isn't necessarily the case that places considering a millionaire's tax shouldn't worry that their millionaires will leave.  It's more complex than just what we currently see.  If wealthy people living in low tax states are living there in part because they are more inclined to go to low tax areas, then they will move if their taxes go up.  In the case of Florida, while they could probably get away with it, it may also be that Arizona, New Mexico and Texas would start to see a larger share of the rich who do move.

If you pay the same taxes in Arkansas as you do in Manhattan, well, New York has lots more cultural opportunities, more diverse food/entertainment, better access to airports that will shuttle one to the far corners of the world, nearby ocean, mountains, rivers...also, it has more rich people already, and the wealthy do love rubbing elbows with each other.  Arkansas does have Petit Jean State Park, which is gorgeous, but probably isn't enough to compete.

So while there's a pretty good argument that, in general, high taxes on wealthy people are not going to lead to an exodus of those same people, it is probably quite dependent on what taxes are already, where the increase would put them, and the particulars of a state/region and the rich that choose to live there.

Yea, but...No

This is such a poor article that I would expect the by line to have been one of Vox's frequent contributors rather than their core staff (and Dylan Matthews at that).  I certainly believe that that the studies countering the original study are valid, and that the original study is likely flawed but the conclusion drawn is not really pushed back on by the rebuttals.

First off, in straight numbers: if 10% of the population is winning 50% of the time (when there is a difference) then that is direct evidence that their share of influence is greater than their position, and it validates the other study, does not counter it. (Yes, the 0 influence of the other is countered, but winning 50% of the time when you make up a much larger fraction of the electorate is losing badly.)

Second, the methodology is questionable (possibly of the original as well, but certainly of the rebuttals).  There are lots of bills that go through congress, and there may be differences of opinion on any of them, but you really want to isolate the ones that one group or another particularly cares about.  Next, the top 10% probably isn't really the most relevant group here, since a big fraction are professionals who may have some issues that really focus on them, but when discussing the oligarchy you really want to focus on a much smaller subset, and it is most likely the top 0.01% that is of the most relevance.  That is a group that is much more impacted by legislation pertaining to how the economy works.  Finally, it is legislation pertaining to how the economy works, not even mainstream issues like taxes and social security that are the problematic issues.  Focusing on "economic issues" is not really telling as the category is so broad as to be irrelevant.  The way the extremely wealthy influence policy is not the big bill but the little amendment, or exclusion to law.  The Trans Pacific Partnership is actually a fair thing to look at, but not as a free trade issue as much as how it is a bill to enforce US Copyright/Patent protections abroad (more than just that but good example).

There is also a bit of a point in there regarding interest groups and how they do get more of what they want, but while the original study separated interest groups into pro-business and pro-public, the rebuttals don't.  Since it is through interest groups that wealthy can influence it seems odd for the rebuttal studies to group all of them together and say that the wealthy don't have much influence because influence groups do...which groups do and who controls/supports them is very relevant.

Finally, Dylan is very oddly dismissive of the points made by the original authors.  Their points were along the lines above and are quite relevant.  Perhaps there is an issue with their original study, but the conclusion is hardly countered by the three rebuttal studies referenced here.  Statistics can tell important stores, but they can also be used to hide important truths.  If the very wealthy only care deeply about 1% of issues that come up, though they will certainly have opinions on the rest, and that 1% all goes their way, then they got everything they wanted.  The rest is noise that hides the important aspect of who dictates legislation.

Capitalism Values

I feel like I'm the only person whose mind boggles that Apple is the highest valued company in the world (and by a huge margin). Apple is a gadget company.  They make toys.  They do innovate, but not really all that much when compared with the research done by companies in medical (incl. pharma) and energy markets.  At some level they don't even make their products, they just design them; a Chinese factory makes them, and Apple gets all the profit.

Their high valuation comes not because they make great products that enhance human welfare--everything they make is made by other companies, sometimes (often?) better, and almost always cheaper--but because their product market is massive (pretty much everyone on the globe), and they are able to sell those products with much higher profit margins than any of their competitors.  Buying an Apple product is like buying any luxury good: you spend a lot more money for something that isn't measurably better but that has the proper logo on it.  It's arguably worse since many luxury goods are measurably better than the non-luxury alternatives, whether that is nicer materials or better construction, or simply, somehow more (think houses or boats).

This isn't saying Apple is bad (it isn't) or people are stupid (we are but this isn't really a great example), but rather that capitalism values making money, and Apple is better at that than anyone else.

Most other large companies require huge capital investments to get going--oil companies need rigs, labs, land access, mineral rights..., pharma companies need lots of expensive laboratory equipment, as well as plants for scaling up.  Apple doesn't.

In most competitive markets the profit margins of products get driven down--Amazon's margins are sometimes negative.  Apple doesn't reduce its margins to gain advantage.

This should serve as a major indictment of capitalism (similar to the unhealthy profits and values of banks and other financial institutions).  I'm not sure why it doesn't, but I'm suspicious that the people most vocal about the "evils of capitalism" also happen to like and use Apple, and so can't see that the company that makes their computer is very representative of the problem.

It seems that if capitalism best served human welfare, then the largest companies would be the most welfare enhancing.  But the most welfare enhancing aspects of [most] societies are actually government run: health care, infrastructure (water, power, transportation), and social welfare programs (anti-poverty, unemployment, retirement) all contribute massively to increasing human welfare, but they are government operated precisely because they are not profitable enterprises which means capitalism wants nothing to do with them.

In reality it is neither capitalism nor socialism but some melding of the two that best serve society, but still, Apple's valuation is mind boggling.

10/28/2015 Update: Looks like Vox is following my blog.  Of course they come off more like fans than seeing this as an strange byproduct of the values of capitalism.

Mostly "Conservative" Rich but Not Entirely

So the "Rich Think the Poor Have it Easy" do they?  I am genuinely curious about why this belief comes about.  Is it straight up class-ism?  Is it a combination of Fox News and the Wall Street Journal poisoning their brains?  I just don't understand how anyone could really believe that the poor have it easy.

We have a (small) safety net that mostly keeps poorer people from being completely destitute.  It helps keep poorer families from starving and helps keep a roof over their head.  Public schools provide some opportunity for advancement for their children, though it should be pretty obvious how inadequate that is.  Moreover we put less toward alleviating poverty today than we did 40, 50 years ago.

I wonder how much is an age divide.  Older people are more likely to be rich.  They mostly grew up during that time that being poor was less of an obstacle than it is today, and there are dramatic differences in some standard of living/cultural issues that confuse the whole picture--"When I was a kid I didn't have an  Xbox and a 40 in. flat screen to play it on!  I had a stick and a hoop and I liked it!"

...really this post is going to be either too long or incomplete so I'm leaving it incomplete.  I just wish I could understand the astounding lack of empathy among the well off in our society.  On the one hand they complain about how hard it is to get by on only $250k, on the other they think people making $20k/year have it easy.

I Hope This Conclusion is Right

This is a great tear-down of Timmy's play time at the Fed and Treasury.  It ends rather optimistically and I really hope that is correct.  It does seem that Democrats are moving away from corruption (while the GOP is ready to hop in and scoop up the leavings).  Still, one Senator Elizabeth Warren does not a movement make. The Democratic party (and, frankly, the US) needs more of her.

Could Have Gone Further

Timmy's book is out and from what I gather it's rather self-serving.  They saved the banks but ignored everyone else, and the economy continues to suffer as a result.  They could have seriously written down/off mortgages and student loans, but they didn't, and so people (even those with good jobs) are more financially constrained than they could have been and so the economy isn't not-sucky.

Housing for the Stupid Rich

a.k.a. McMansions...

I have a pretty visceral negative response to most McMansions that is neatly summed up near the end of the linked article:

But what I discovered is that the form doesn’t really change. Yes, the houses get bigger every year, gables and gazebos come and go, but what is really striking about the McMansion is its vapid consistency as the decades pass.

What stays the same, and what always gets me when I walk through one of these houses, are the vacuous spaces. The vast stretches of painted sheet-rock. The gaping rooms that are simply too tall to decorate. The billowing industrial roof. The windowless walls. 

There’s something else, too. Stand in the street when the sun hits the McMansion from the right angle and its glare obliterates the fake muntins in the windows and suddenly you grasp the truth about this form: It is staring at you with those blank featureless eyes, those empty holes in that vast, unadorned wall, demanding to be fed. This house doesn’t serve humans, we serve it.

I live in a neighborhood with plenty of large houses (not mine), most of which date to the late 19th, early 20th century.  Houses that were well built, functional and served to house people well.  They are, I still think, too large by half for most families, but they are not the insanity that is the McMansion.  It's the useless space in so many newer large homes that I really don't like.  Space that needs to be heated, cooled, adorned, cleaned, but that doesn't provide any functionality.  In the older houses, even the large ones, you find that most of the space is somehow useful (yes, there are true mansions that have useless space, but at least those are well made and really look great).  The McMansion equivalents around me have relatively small bedrooms, in which a queen sized bed often feels cramped.  The closets range from small to smaller, and bathrooms and kitchens are utility rooms, not designed to be living spaces themselves.  There may be too many rooms, but each room is serviceable.

Other than very large families or frequent hosting of parties there isn't much use to space beyond a certain point.

What is "Self-Made"

A lot of the income inequality/mobility discussion has, as part of its background the fact that most of the really wealthy are "self-made" which, as far as I can tell, means they didn't inherit their great wealth.  But there's a problem with that fact: it doesn't count leg-up wealth.  Mitt Romney is a good example.  Everyone knows he was born to wealth and opportunity, but his current wealth is "self-made".  Sure he inherited (or would have, not sure on the timing) lots of $$, but he has made quite a bit more.

Even Bill Gates, who most people see as an innovator and self made man, had pretty well off parents.  The children of wealthy people have advantages that others don't, even without looking at some big inheritance/gift.  They can afford to take more risks and chances than most people, because if they fail, they won't be destitute.  Bush Jr. failed at every enterprise he ever attempted and he was gifted the presidency thanks to daddy's little supreme court justices!

That America has lots of "self-made" extraordinarily wealthy individuals is not a testament to America as a land of extraordinary opportunity unless rich, middle class, and poor alike all have the same chance of making it.

Another Must Read

Really, just about everything Matt Taibbi writes, but this one is the latest.  Depressing, but stuff that everyone needs to know if we're to have any hope of stopping the next global financial meltdown.

Good Analogies

I really wish more people saw things in this way.  One thing I noticed reading the article that I'm surprised wasn't mentioned explicitly was poverty reduction as a benefit to the wealthy.  It is actually hinted at when he writes:

Taxation is a legal construction in exactly the same way as personal property rights are, and they are enforced using the same legal system that protects personal property rights. It is not reasonable to refuse to pay the membership fee for the country where you choose to live, while expecting the legal system of that country to protect your property from the desire of others to take it from you.

He could have easily pointed out at this point that taking care of the needs of the poor is a service to the rich expressly because it prevents them from becoming so destitute that stealing is a rational economic choice.  This directly throws a wrench in the argument that the rich get out less than they put in, because things like poverty reduction, crime prevention, and incarceration can actually be seen to benefit wealthy people much more than poor or middle class (they have more "stuff" to take).  

Income Mobility

Since the news came out that income mobility in this country, while crappy, has actually been pretty bad for a while, there's been some changing to the inequality debate.  Mostly not in a good direction.  It shouldn't need to be pointed out that mobility and inequality are very different issues.  It is possible to have very high mobility with simply insane inequality.  Imagine a country where the .01% owned 99% of the wealth, and everyone else was pretty much equal.  There could be a lot of mobility (it could be very easy for someone to move from the 10th to the 85th percentile if it only took an extra 20% of income to get there), but that level of inequality is still a major problem.

So these are two different issues and should be addressed as such.  It's great if people have the same chance as ever of making it to the top tier in this country, but it is pretty disgusting for that top tier to be so far separated from normal people (even upper middle class) as they are.  Two separate issues.  Not really even linked.

Ok, I Don't Get It

Maybe I'm misunderstanding the minimum guaranteed income, but I don't get Tyler Cowen's "problems" at all.  All of them stem from:

Must a guaranteed income truly be unconditional?  Might there be circumstances when we would want to pay some individuals more than others?

and my answers are simple: "yes" and "no".  My understanding is that the minimum income is just paid out to everyone [who files a tax return].  So everyone gets, say $1000/month check to do with as they please, and that doesn't go down if they happen to work so work = more money!  Depending on the level it was set at it may be able to replace food stamps and/or cash welfare and/or housing assistance but there is no good reason to drop medicare/medicaid/social security, as those are highly efficient, targeted programs that both do good and are very popular.

(Yes, I suspect that "getting Republicans to go along with this" would probably mean cutting or eliminating those programs, but that certainly shouldn't be considered a problem with min income itself, rather a politics problem.)

I would think a bigger issue is that it would likely push up inflation at the bottom end of things (particularly low end rents and eating out would be likely to go up), though that means an even greater incentive to work for low income individuals.  In the middle it would serve as extra savings or allow a bit of extra extravagance, and at the top it would be pretty much useless, particularly as it would be way more than offset with the higher taxes required to afford it.

Luxury Goods

I don't really get pretty much any luxury goods.  I'm willing to spend more on a good quality suitcase, and whenever I get around to updating/renovating my kitchen I will likely buy a refrigerator that is both of good quality and that looks good. Still, there's a world of difference between a high quality carry-on suitcase and this or even this.  (Also, while I'll admit to having spent way too much going out to dinner on occasion, it was nothing like these burgers.)

I do understand paying more for quality and style, and I understand paying for something a bit different/unique, but with the variety of options out there I don't understand anyone spending outrageous sums of money for, really, anything (worst: people who spend tons to get the exact same stuff as other rich people...what a weird mindset).

I suppose that this is the reason I drive a 10 year old compact station wagon (albeit a kinda sporty one: Mazda5), and why I got a house that is less than 1500 sq ft.  I could be given millions of dollars and I still wouldn't see much need to get a new car or a new house (though, yes, I would renovate, but I'm planning on doing that anyway).

So a $6000 smart phone?  Sure, why not?  I'm not their target any more than I am Bentley's.  While I may think it a pretty stupid thing to do, the people who would buy that, buy plenty of other things I consider very stupid...and someone needs to take their money away from them since the government won't.

Fix The Debt Learns It Isn't Loved

(Well, aside from the idiot talking heads on my TV.)  I do like twitter on occasion.

Kinda Obvious, Really

I'll bet most rich people reading the article in the NY Times nod and think it doesn't apply to them, but rich people do care less.  I wonder, however, which way the cause and effect goes.  Is it that becoming rich induces people to care less or is it that people who care less are more likely to become rich?  I can see either, but the latter makes pretty good sense.  It is easier to become rich if you don't care about others.

I Don't Really Believe Greg Mankiw is Stupid

But his "Defending the One Percent" makes me seriously question that belief.  It has some pretty glaring shortcomings and reads more like something I would expect of a new graduate student in political science than a Harvard professor of economics.

The problem isn't that he has written anything in particular that is wrong, but that the whole thing is not even wrong.  It's mostly arguing against a series of straw men. There isn't a single argument he puts forward that can't be demolished with 5 seconds of actual thought.  It's like Newt Gingrich wrote it: it sounds smart to stupid people, but any actual smart person would consider it a joke.

He seems to go back and forth between economic and moral notions of what is and what should be that leaves a confused mess.  In the end his "just desserts" theory sounds like a moral judgement and is couched in such terms, but the moral is: every one gets their marginal economic contribution, and that's just a load of crap.

I haven't the inclination to do a complete tear down on it but there are two things that pretty much kill off whatever he is saying:

1. People who think that current trends and levels of inequality are bad are not, as far as I have seen, arguing that we should do away with inequality entirely.  We will and should always have a 1% (and a 0.01%), it isn't their existence, but rather the yawning gap separating them from the rest of us that is the problem, and that Mankiw never addresses.

2. The marginal utility of $1 vs. the marginal economic contribution is a serious discussion which Mankiw just ignores, though he states conclusions as though it was obvious (basically how would his "just desserts" get applied in reality?).

Further to point 2.  Say someone creates something that provides $10 of good to everyone on the planet.  This person has certainly created something of immense value, but how do you reward that justly?  Mankiw's "just deserts" theory would imply something close to $70 billion, but there is approximately zero effective difference between giving that person $1 billion and the total $70 billion.  Really, there probably isn't a difference down to below $100 million.  So at what point is that person no longer benefiting justly, and just hurting the broader economy by depriving others of capital?

More importantly, how do you deal with things provided by workers in non-profits and government agencies?  Scientists and researchers create things that have immense value to our lives and societies, but are almost never compensated at anything approaching their contributions.  I don't care how much of an ass you are, you can't tell me that Steve Jobs gave more to humanity (morally or economically) than Jonas Salk.  Further, there is a serious question as to who did "create" the things that make people wealthy.  iPods are great, but there is a shit-ton of prior research and development that were required before that last step was taken, Steve didn't do all that, but he (well, Apple) got to reap the rewards anyway without haveing to go back and pay for the prior research.

Maybe Mankiw is stupid.

Update: Lots of others hammering on the idiocy.  Here is one with lots of other details, and here is one that does a much more thorough job than I do on the "just desserts" moral economics issue.

Fuck You, Apple

Apple is really just the worst offender on this crap.  And they want a repatriation tax discount/holiday so that their behavior will go almost completely unpunished.  What we should do is state that US companies holding money overseas pay a 5% surtax on any profits not repatriated within 1 year, and no discounts for bringing it back.  Make it more expensive for them to keep their profits sheltered abroad.  Now this may mean more cooking the books to hide money, but at some point that becomes illegal and even if it isn't it would hurt share prices.

Retiring at 30

After doing an interview with the Washington Post, Mr. Money Mustache has gotten quite popular.  Retired at 30 due to lots of heavy saving, and very low debt (no student loans, buying used, cheap cars, buying fixer-upper houses and doing the work themselves...he does seem to be advantaged by being very smart and capable).  This is certainly possible--though it would be very hard with a median family income--but it is only possible for a very small subset.  The thing is, if everyone tried to do this, the economy would crash and nobody would be able to get the jobs necessary to get started.

Rent seeking (which can be owning rental properties, or living off investment returns) is a strategy that works very well so long as only a very small subset of the population attempts it.  If everyone buys a house, then you won't be able to rent out properties to anyone.  Similarly, if everyone tried to by used beater cars, then no new ones would be produced (and those companies would go under, and lots of jobs lost and...).  This works at just about every level.  If you want to invest in anything and get any return, then whatever you are investing in needs customers.

Our economy needs for lots of people to dine out more often than MMM, and to buy new things (cars, bikes, furniture) and to pay for other people to do work on their houses, and to rent, and on and on.  There is certainly some subset of jobs/careers/companies that would continue to exist in a high saving world (e.g. we would still need food, shelter, education and transportation) but even that still wouldn't be a world where people could, in large numbers, live off their savings.  The more people try not to work, the more things produced by work would need to cost.  Someone needs to produce the food.  The other alternative would be for all people to become much more autonomous, but that isn't retirement, that is just doing lots of jobs and not sharing/trading the fruits of your labor.

So good for them, and good luck to people who try and do something similar, but most will fail, and that is good.  It is good for the whole economy but it is particularly good for MMM.

Also: please note that in most ways that matter, MMM is a 1%er.  His income is not necessarily that high (though higher than the $25k/year they spend), but he has far more wealth than most people.  For the 9 years of work that he and his wife put in they likely combined to have quite a high income (to 10% at least).

That's Because the Political Right is For Billionaires

Digby's comments on the Bloomberg story about billionaires working to stave off climate change includes the following:

...The right wing billionaires play the full political spectrum: they fund causes they believe it, they fund the Republican Party and they fund conservative and libertarian institutions to push their ideology, which they fully and completely embrace. The centrist and liberal millionaires and billionaires not so much. They narrowly choose their issue, whether it's education or something else and refuse to fund ongoing ideologically based institutions. At this point, that's tantamount to working for the other side.

The problem is that most billionaires are primarily concerned with making (and keeping) lots of money.  That's actually true of most millionaires as well.  People that are not super focused on making lots of money don't generally make lots of money.  

One of our political parties is primarily concerned with making sure millionaires and billionaires get to keep as much money as possible.  The other is (nominally) concerned with universal equality (of opportunity).  So if you are a right-wing billionaire, then you are pretty much 100% behind the GOP: both you pet issues and your personal ones are served by them.  If you are a left-wing billionaire, on the other hand, it is most likely only your pet issues are (nominally) served by Democrats. 

Things changed through the 90's and 00's as Democrats changed to be more friendly to Wall Street (to the expense of the country), but still, even our right-of-center Democratic president occasionally talks about the rich/banker types as being a part of the problem, and having responsibility to pay their fair share (even though he really doesn't do anything about that).